Jamie Murray of Bloomberg writes
“U.K. Austerity Critics Must Explain Productivity Link”. To which my immediate
reaction is ??!? When have those who criticise UK austerity ever claimed it is
responsible for the UK productivity puzzle? Certainly not me, and I’m the only
critic quoted in the piece.
The problem is in the framing, set out in the first paragraph.
There is apparently a debate between those who blame poor UK growth since 2010
on austerity, and those who blame it on other factors like the Eurozone crisis
and a risk averse banking sector. No, there is no such debate. The reason there
is no such debate is given in the first line of the next paragraph: “Both are
likely to be true to some degree ….” Exactly right! But then the sentence goes
on “and the extreme polarization of views reflects badly on economists and
commentators, some of whom may be motivated by political ideology rather than
reason.” You talkin’ to me?
This is classic “plague on both houses” stuff - both sides are
too extreme (probably because they are ideologically motivated), so let’s take
a more reasonable middle view. The only problem in this case is that to do this
you have to misrepresent one side. There is very little disagreement among
serious economists that UK austerity in 2010 and 2011 reduced UK GDP. The OBR,
using rather conservative multipliers, thinks that GDP in 2010 was about 1% lower,
and in 2011 about 1.5% lower as a result of fiscal policy, with significant
knock on effects into later years. The estimates by Jorda
and Taylor involve similar magnitudes, but perhaps if you added in large
expectations effects you could double the OBR’s numbers, although whether you
could then also assume no offset from monetary policy becomes an important
issue. Whatever you do, there is no way you are going to get close to the fact
that GDP is currently around 15% below its pre-recession trend. Put simply, the productivity
puzzle matters more. But that does not mean austerity is unimportant: just 1%
of GDP completely wasted is a big deal.
Now it could be that the productivity puzzle is not completely
independent of austerity, and Murray’s article actually makes some suggestions about
possible links. But the bottom line is that, among serious economists,
austerity is highly unlikely to explain all or indeed most of poor UK growth.
So this side of the 'debate' does not really exist. But the other side does
exist, if only in the shape of the UK government. They want to avoid as far as
possible any discussion of exactly how much austerity reduced GDP, and instead
they want to claim that austerity produced the recovery! It
is that side of the debate that has some explaining to do. Given the links between austerity and productivity the article discusses, a much fairer headline would have been 'impact of UK austerity may be even worse than critics suggest'.
While I’m in complaining mode, two other things that I get annoyed at. Murray says a good place to start is the OBR’s analysis of how its
forecast changed between 2010 and 2014. He is not the only one to focus on the
OBR’s forecast errors when addressing this ‘debate’. But this makes no sense,
because the 2010 OBR forecast already had their estimates of austerity (see
above) embodied within it! The government loves to play this trick, but good journalists
should not follow their lead.
The second point is that critics of UK austerity would never
argue that external factors were not important, if only because a key external
factor was the impact of austerity in the Eurozone. As this Commission analysis shows, backed up by
similar analysis at NIESR, austerity was a key factor behind the
second Eurozone recession, and most of that austerity came from core rather
than periphery countries. The argument that this was all a necessary response
to the debt crisis just does not wash after the obvious impact of OMT.
What is really going on here is this. The intellectual debate
over austerity is largely over, and the right side won. Good commentators who
do not have an axe to grind know this. But they also know that the political
debate went the other way. Writing about this paradox
would appear politically one-sided. Much better to portray critics of this
political outcome as much more extreme than they actually are, and get to
something like the truth by being more ‘balanced’. It is not a game I like, and
I like even less being misrepresented.
